Anatomy of a $30 Billion Medicare Crime

Like all great capers, this $30 billion Medicare crime unfolded in plain sight. A drug rep sat in the doctor's office, balancing folders on his knees and flipping through the patient files. He wore a starched shirt, navy slacks and a golf tan from that day he'd convinced the doctor-client to participate in his company's "mini-trial." The deal was this: if the oncologist would inject his patients with high doses of a poorly tested drug, he could pocket $1,500.

But the doctor was too busy to select patients for this "study." So, the salesman, Dean McClellan, combed through the confidential patient files himself, searching for a few human guinea pigs to enroll. He found his subjects and, over the ensuing weeks, tracked their reactions to the high doses of the anti-anemia drug Procrit. "Cancer to the brain was worse," the rep wrote in one patient chart. "But anemia was better."

Let us count the ways in which this was illegal. First, the payments were bribesused to seduce doctors to pump Procrit doses to levels not approved by the Food and Drug Administration. Procrit helps cancer patients produce enough red blood cells so they can avoid blood transfusions and withstand chemotherapy. Yet, some patients in McClellan's "trials" weren't undergoing chemo. Many didn't even know they were being used as guinea pigs. Worse, there was no investigative review board, control group or protocol as there'd be in a bona fide scientific study. If there had been, someone might have noticed that three out of five people were dying in McClellan's jerry-rigged trials.

Such shocking human tests are not supposed to happen in our day and age. In the 1930s, officials conducted the Tuskegee "experiment" and allowed poor black men to die painfully from untreated syphilis. In the 1940s, people were injected with plutonium to see how long they'd survive. These appalling tests produced strict rules that make it unethical to experiment on people today without their informed consent.

But no such rules applied to those "mini-trials," which were thinly-veiled sales gimmicks. Indeed, McClellan's employer, a unit of Johnson & Johnson (J&J), was so confident of its top-selling drug, it believed more was better. So, imagine McClellan's horror when he learned that Procrit triggered strokes and multiplied cancer cells. "I never would have sold the stuff if I'd known it was killing people," he told me.

These allegations are detailed in McClellan's 2006 complaint pending in US District Court in Boston. Whistleblower McClellan and his buddy, the late Mark Duxbury, claim their bosses paid doctors about $17 million to gun Procrit doses and company profits. They were told to give doctors the drug free and discounted, and to show them how to submit false insurance claims.

J&J is not the only one pushing off-label promotions, however. In 2007, Bristol-Myers Squib paid $515 million to settle charges it promoted an adult bipolar medicine for children. In 2009, Pfizer paid $2.3 billion to resolve off-label activities around Bextra. Last year, Allergan pled guilty and paid $600 million for illegally promoting Botox.

Yet, fraud wasn't even mentioned in President Obama's recent plan to cut $320 billion from the ten-year projected growth of Medicare and Medicaid. Before slashing desperately needed services for the poor and elderly, we should get aggressive about recovering funds stolen from taxpayer-supported programs. Fraud is an annual $250 billion business, and at least $100 billion of that is siphoned from Medicare and Medicaid. Recovering billions of dollars from these crimes would go a long way in protecting the health of all of our citizens, not just program beneficiaries.

Many states already pursue health care fraud. In 2005, whistleblowers who worked for Quest Diagnostics accused the chain of medical laboratories of deliberately overcharging California's Medicaid program for about 15 years. Quest had paid kickbacks disguised as free tests and discounts to doctors who referred patients to its labs. Despite denying wrongdoing, the company settled and California Attorney General Kamala Harris recovered $241 million, the largest fraud settlement in that state's history.

In a separate case filed in New York, the same company stands accused of overbilling billions of dollars from our nation's Medicare plan. Yet, oddly, the Department of Justice (DOJ) has not joined the case.

Why not?

It could be that the DOJ prefers to let the state attorneys general do the heavy lifting. Once a state wins a case, the feds can piggyback onto it. This could be happening in the Quest case since the DOJ said that it might intervene in the national suit later. But why wait? Here's a reason, said whistleblower Andrew Baker: "Quest is too big to go after." The Department, he said, saves "its energy to muscle small-time doctors," like the Miami-area doctor convicted of falsely billing Medicare.

McClellan estimates that his case is worth $30 billion to the government. Yet, the DOJ has declined to pursue it, too. Instead, it's in the pile of 1,300 other whistleblower cases under investigation. That figure is up significantly from the 900 or so cases that were stalled at the end of the Bush administration. To be fair, the department has long been understaffed when it comes to health care investigations. But in 2009, the DOJ and the Department of Health and Human Services were given an additional $198 million to combat fraud. Yet, those funds haven't helped. Not only were total fraud convictions lower that year, so were filings of new prosecutions.

Last year, the DOJ recovered $3 billion in false claims, $2.5 billion of that from health care cases. But that's just a drop in the swamp. It's gotten so that even if a case is settled, many pharmaceuticals simply write it off as the cost of doing business. After all, if you're selling $44 billion worth of drugs a year, a $2.3 billion fine is lunch money.

This winter, McClellan and his lawyer will try their whistleblowing case - alone. US Attorney General Eric Holder and Assistant Attorney General Lanny Breuer will no doubt keep tabs on this suit they know well. Before becoming America's top lawmen, the two were partners at the same DC firm that's now defending J&J against McClellan's charges. Perhaps, this is another reason why our government is soft on fraud. Our health care crisis may be pummeling the weak and vulnerable, but safeguarding the status quo is still an incredibly lucrative job - even when performed in plain sight.

Anatomy of a $30 Billion Medicare Crime

Like all great capers, this $30 billion Medicare crime unfolded in plain sight. A drug rep sat in the doctor's office, balancing folders on his knees and flipping through the patient files. He wore a starched shirt, navy slacks and a golf tan from that day he'd convinced the doctor-client to participate in his company's "mini-trial." The deal was this: if the oncologist would inject his patients with high doses of a poorly tested drug, he could pocket $1,500.

But the doctor was too busy to select patients for this "study." So, the salesman, Dean McClellan, combed through the confidential patient files himself, searching for a few human guinea pigs to enroll. He found his subjects and, over the ensuing weeks, tracked their reactions to the high doses of the anti-anemia drug Procrit. "Cancer to the brain was worse," the rep wrote in one patient chart. "But anemia was better."

Let us count the ways in which this was illegal. First, the payments were bribesused to seduce doctors to pump Procrit doses to levels not approved by the Food and Drug Administration. Procrit helps cancer patients produce enough red blood cells so they can avoid blood transfusions and withstand chemotherapy. Yet, some patients in McClellan's "trials" weren't undergoing chemo. Many didn't even know they were being used as guinea pigs. Worse, there was no investigative review board, control group or protocol as there'd be in a bona fide scientific study. If there had been, someone might have noticed that three out of five people were dying in McClellan's jerry-rigged trials.

Such shocking human tests are not supposed to happen in our day and age. In the 1930s, officials conducted the Tuskegee "experiment" and allowed poor black men to die painfully from untreated syphilis. In the 1940s, people were injected with plutonium to see how long they'd survive. These appalling tests produced strict rules that make it unethical to experiment on people today without their informed consent.

But no such rules applied to those "mini-trials," which were thinly-veiled sales gimmicks. Indeed, McClellan's employer, a unit of Johnson & Johnson (J&J), was so confident of its top-selling drug, it believed more was better. So, imagine McClellan's horror when he learned that Procrit triggered strokes and multiplied cancer cells. "I never would have sold the stuff if I'd known it was killing people," he told me.

These allegations are detailed in McClellan's 2006 complaint pending in US District Court in Boston. Whistleblower McClellan and his buddy, the late Mark Duxbury, claim their bosses paid doctors about $17 million to gun Procrit doses and company profits. They were told to give doctors the drug free and discounted, and to show them how to submit false insurance claims.

J&J is not the only one pushing off-label promotions, however. In 2007, Bristol-Myers Squib paid $515 million to settle charges it promoted an adult bipolar medicine for children. In 2009, Pfizer paid $2.3 billion to resolve off-label activities around Bextra. Last year, Allergan pled guilty and paid $600 million for illegally promoting Botox.

Yet, fraud wasn't even mentioned in President Obama's recent plan to cut $320 billion from the ten-year projected growth of Medicare and Medicaid. Before slashing desperately needed services for the poor and elderly, we should get aggressive about recovering funds stolen from taxpayer-supported programs. Fraud is an annual $250 billion business, and at least $100 billion of that is siphoned from Medicare and Medicaid. Recovering billions of dollars from these crimes would go a long way in protecting the health of all of our citizens, not just program beneficiaries.

Many states already pursue health care fraud. In 2005, whistleblowers who worked for Quest Diagnostics accused the chain of medical laboratories of deliberately overcharging California's Medicaid program for about 15 years. Quest had paid kickbacks disguised as free tests and discounts to doctors who referred patients to its labs. Despite denying wrongdoing, the company settled and California Attorney General Kamala Harris recovered $241 million, the largest fraud settlement in that state's history.

In a separate case filed in New York, the same company stands accused of overbilling billions of dollars from our nation's Medicare plan. Yet, oddly, the Department of Justice (DOJ) has not joined the case.

Why not?

It could be that the DOJ prefers to let the state attorneys general do the heavy lifting. Once a state wins a case, the feds can piggyback onto it. This could be happening in the Quest case since the DOJ said that it might intervene in the national suit later. But why wait? Here's a reason, said whistleblower Andrew Baker: "Quest is too big to go after." The Department, he said, saves "its energy to muscle small-time doctors," like the Miami-area doctor convicted of falsely billing Medicare.

McClellan estimates that his case is worth $30 billion to the government. Yet, the DOJ has declined to pursue it, too. Instead, it's in the pile of 1,300 other whistleblower cases under investigation. That figure is up significantly from the 900 or so cases that were stalled at the end of the Bush administration. To be fair, the department has long been understaffed when it comes to health care investigations. But in 2009, the DOJ and the Department of Health and Human Services were given an additional $198 million to combat fraud. Yet, those funds haven't helped. Not only were total fraud convictions lower that year, so were filings of new prosecutions.

Last year, the DOJ recovered $3 billion in false claims, $2.5 billion of that from health care cases. But that's just a drop in the swamp. It's gotten so that even if a case is settled, many pharmaceuticals simply write it off as the cost of doing business. After all, if you're selling $44 billion worth of drugs a year, a $2.3 billion fine is lunch money.

This winter, McClellan and his lawyer will try their whistleblowing case - alone. US Attorney General Eric Holder and Assistant Attorney General Lanny Breuer will no doubt keep tabs on this suit they know well. Before becoming America's top lawmen, the two were partners at the same DC firm that's now defending J&J against McClellan's charges. Perhaps, this is another reason why our government is soft on fraud. Our health care crisis may be pummeling the weak and vulnerable, but safeguarding the status quo is still an incredibly lucrative job - even when performed in plain sight.